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Article
Insured Uncovered Interest Parity
Finance Research Letters
(2013)
Abstract
The current literature suggests that uncovered interest parity (UIP) does not hold because of differences in risk in holding different currency denominated debt. We test whether this risk is related to sovereign credit risk in government bonds. We consider an insured uncovered interest parity relationship – that is, one where debt is insured with credit default swap (CDS) contracts. CDS rates help explain the UIP puzzle but have no predictive power for carry trade returns and currency movements.
Publication Date
January 12, 2013
DOI
10.1016/j.frl.2013.06.004
Citation Information
Yiuman Tse and John K. Wald. "Insured Uncovered Interest Parity" Finance Research Letters Vol. 10 Iss. 4 (2013) p. 175 - 183 Available at: http://works.bepress.com/yiuman-tse/22/